Possible Fat In The City Of Houston Budget
Citizens For Public Accountability has attempted, by both written communication and appearances before city council, to advise our elected city officials on several occasions as to the building financial crisis at the City of Houston and the areas of the City’s operations that appeared to contain significant fat and, therefore, significant possible cost savings.
CPA has requested of the current and the prior chairperson of the city council’s fiscal affairs committee to appear before the committee and cover the subject matter in the following document.
We have been rebuffed on every occasion.
Our attached August 9, 2002 report to the Tax Research Association of Houston and Harris County (TRA) contains most of the message we have been attempting, for quite some time, to deliver not only to our elected city officials but also to the media. TRA is funded by some of the leading Houston area companies.
TRA has made an in-depth open records request of the City, seeking explanations regarding the City’s utilization of manpower, equipment and other resources. See their website, www.trahouston.com. It is our understanding that TRA will use their findings to conduct a very focused candidates’ forum, early enough in the process to help ensure that the candidates are forced to properly address the fat in the City’s budget and what the candidates propose to do about it. Stay tuned to TRA’s website for related developments.
We welcome your interest and will be pleased to dialogue with interested groups on the problems we see with the city’s finances.
City of Houston
City At A Financial Crossroads
August 9, 2002 Presentation to
Tax Research Association of Houston and Harris County
By: Bob Lemer
Citizens for Public Accountability
13603 Apple Tree Road
Houston, Texas 77079
Growth in the cost of Houston city government has gotten out of control over the last two decades and must be brought under control if Houston is to remain a great city and be competitive economically, as well as be fair to its taxpayers.
The cost of Houston city government can be brought under control, if:
- Voters approve the proposed city charter amendment that will be on the ballot sometime in 2004. The proposed amendment will require that the City obtain voter approval before the City can increase its total revenues in any given year by more than the combined rate of increase in population and inflation.
- In the meantime, City officials cut the fat out of the current City budget.
- The City is enjoying record property tax revenues, yet it faces a financial crisis.
- What has happened?
- Growth in cost of City government has far outstripped the combined rate of growth in its population and the Consumer Price Index.
- City of Houston is now the second largest employer in Harris County
- How did all of this happen?
WHAT DOES THE GRAPH SAY?
- City officials have not taken issue with the accuracy of the graph, only with interpreting it. That is because the total revenues and long-term debt data is straight out of the City’s audited annual financial statements and the CPI and population data is straight from the federal government’s applicable websites.
- Graph shows that City revenues have grown at about twice the combined rate of growth in population and inflation.
- Graph shows that growth in City’s long-term debt is approaching four times the rate of growth in population and inflation.
- If the City had kept its growth in revenues to the combined rate of growth in population and inflation, instead of its current $2.6 billion annual budget, the City would have a budget of around $1.8 billion.
- The $800 million difference is greatly more than the entire current annual property tax revenues of the City. If the City had hewed to the rate of growth in CPI/population, we wouldn’t even need a property tax.
- Put another way, it could be said the City is spending $3 for every $2 it should be spending.
- Bear in mind, the results are even worse if the City was not a model of efficiency in the 1983 base year.
FACTORS THAT CAUSED THE PROBLEMS - #1
During 1983 to 1990 (Oil Bust Years):
- Raised property tax rates 27%
- Raised water rates 119%
- Raised sewer rates 161%
- Increased long-term debt 58% (including long-term funding of deferred maintenance and repairs)
FACTORS THAT CAUSED THE PROBLEMS - #2
During 1990s (Good Economic Times):
- Declined to roll back any portion of the 1980s revenue rate increases and thereby return, at least to some extent, the 1980s bail out of the City government by Houstonians (dictated to them by the mayor and council)
- Increased the property tax rate by 5.5%
- Greatly increased the rates for licenses, fees, fines, forfeits and other charges
- Consumed in operations the massive savings from refinancing the City’s debt, rather than setting the funds aside for debt service
- Siphoned off most of METRO’s huge treasury (once about three-fourths of a billion dollars)
- Siphoned off to General Fund uses the bountiful Water and Sewer Fund surplus (“Any Lawful Purpose Fund”) created by the enormous increases in water and sewer rates in the 1980s
- Expanded City’s long-term debt by an additional 250% (versus 1983), including continued long-term funding of deferred maintenance and repairs
WHAT ARE THE SOLUTIONS?
- Do not repeat the just enumerated mistakes of the 1980s and 1990s
- Approve the ballot proposal in 2004 to amend the City charter in order to rein in the growth of City government in excess of the combined rate of increase in population and inflation
- In the meantime, cut the current fat out of the City budget
PROPOSED CITY CHARTER AMENDMENT
- Submitted petition (authored by Bob Lemer) already has been certified by the City Secretary as having the necessary 20,000 signatures of qualified voters
- Will appear on the ballot sometime in 2004
- Petition signatures were obtained by Let The People Vote On Taxes PAC, a nonpartisan PAC
- Signatures were obtained in little over one month, with about 1,000 signers feeling so strongly that they accompanied their signature with a contribution check
THINGS THE PROPOSED CITY CHARTER AMENDMENT DOES AND DOES NOT DO
It should result in forcing the City to merge its operating, capital, and long-term debt needs and prioritize them on a City-wide basis. One benefit of this would be that voters would, in effect, get to vote on all of the City’s long-term debt. Currently, Houstonians get to vote only on tax-supported bonds, less than 20% of the City’s long-term debt.
- It does not automatically prevent anything
- It does require that the City obtain advance approval of 60% of those voting in order to increase for any given year the City’s total revenues at a rate greater than the preceding year’s combined rate of annual increase in population and inflation
- It does provide for excluding from the cap any emergency revenues needed to meet federally declared disasters, such as Allison
- It does provide that all covenants with bondholders will be met and that bondholders receive first dollars
- It does provide for pre-certification by the City Controller that the proposed annual budgets meet the required cap placed by this charter amendment
- It does provide that the City’s outside auditing firm certify at each fiscal year end whether the City has actually met the charter revenue cap
- It does provide that any excess revenues found to exist by the City’s outside auditing firm shall be placed in an untouchable Taxpayers Relief Fund, to be refunded to Houston citizens and businesses anytime the Fund’s balance reaches $10 million
- It does require timely public hearings and comprehensive disclosures to the voting public anytime that the City wishes to obtain voter approval for exceeding the total revenue cap in any given year, or the City seeks voter approval for long-term debt (much broader disclosures than now given the public prior to seeking long-term debt approvals)
- It does provide for indexing back to the City’s fiscal year ended June 30, 2001, to prevent gamesmanship prior to the date of vote on this proposed amendment
- It does provide for enforcement and sanctions for violation
CUTTING THE FAT OUT OF CITY GOVERNMENT
- Difficult to accomplish without a truly independent blue ribbon oversight committee
- Consider having a prestigious fat-finding “general contractor”, such as the American Productivity and Quality Center located in Houston
- Make use of all worthwhile already existing and unimplemented studies
- No sacred cow departments or Funds
- Mayor, his administrators and his supporters on city council maintain there is little, if any, fat in the City budget. You be the judge after I review some departments with you.
- I will review with you some of the largest and most sacred cow departments
FAT INDICATORS - #1
- Growth in cost of City government is about twice the combined rate of growth in population and inflation
- City is second largest employer in Harris County
- Work force is top heavy and growing increasingly so. Just from fiscal 1996 to 2001, the budgeted total personnel in the top 11 of the City’s 39 pay grades increased 38.8%
- A substantial number of employees are receiving pay raises via pay grade promotions, as evidenced by “pay grade creep” (the constant upward shift in employee counts by pay grade). In other words, executives and supervisors are enabling employees to get around the percentage caps on pay increases.
- Approximately 1,000 “administrative aides” budgeted
- Duplication in departments and Funds of centralized support services such as purchasing, accounting, auditing, payroll, human resources and fleet management
- Duplication of basic services, such as health department, already furnished by other government entities
- Lack of performance standards that are not subject to manipulation by the affected departments or Funds. Existing standards do not appear to be compared to the private sector, where applicable.
- Fringe benefits that seem much better than the private sector (example, earlier retirement and at higher % of base pay)
- Seeming lack of reasonable assessment of condition of City’s total infrastructure
- Use of long-term debt financing of deferred maintenance
- Seeming lack of use of leverage in health care benefit contracting. As second largest employer in Harris County, City should be the proverbial 800-pound gorilla. Should consider self-insurance with catastrophic reinsurance and other features.
- Lack of coordination of City infrastructure repairs and improvements with projects of utility companies and contractors
- Limited use of privatization options (affected department should be allowed to be a bidder)
- Some services, such as information systems, that might be better and more economically performed if centralized and outsourced
FAT INDICATORS - #2
- 1991 Cresap Consulting report “---The Department has ample resources, not only to fulfill its basic enforcement responsibilities, but also to implement new policing approaches and styles---” and “---Variances in crime occurrences between times of day, days of the week, and times of year were not properly considered in staffing shifts---”
- In face of this report, the City still dramatically increased the number of police officers, draining METRO’s treasury to do so. The results?
- Of the 10 largest US cities, Phoenix, San Diego and San Antonio have significantly fewer officers per 100,000 population and per square mile, yet have considerably fewer violent crimes per 100,000 population than Houston. (Even New York City has greatly fewer violent crimes per 100,000 population than Houston)
- Of the 10 largest US cities, HPD has the 2nd largest number of civilian employees per 100,000 population
- HPD employees, both officers and civilians, take the bulk of their vacation time during the highest crime periods (Summer and the Thanksgiving and Christmas holidays). Seasonal companies do not permit this in the private sector.
- Police officers man desks that could be more appropriately and more economically performed by civilians
- Only a 1.9% turnover in police officers in the first 9 months of fiscal 2001
FAT INDICATORS - #3
- Of the 10 largest US cities, Houston has the 3rd most firefighters per 100,000 population. Even on a per square mile basis, San Antonio, Dallas, Phoenix and San Diego have fewer.
- Budget provides for almost 700 firefighters from the rank of captain up to chief. How many of these can, and do, ride trucks?
- Already increased the number of firefighters by 20% since 1992, greater than the rate of increase in population
- Increased the department’s civilian work force by 68% since 1992 (over 3 times the rate of increase in firefighters), and commenced doing so well in advance of increasing the number of firefighters
- A decade ago, the fire chief accepted and attempted to implement an outside consultant’s wide ranging recommendations but was thwarted by the firefighters union
- Firefighters man desks that could be more appropriately and more economically done by civilians
- Only a 2.9% turnover in firefighters in first 9 months of fiscal 2001
FAT INDICATORS - #4
Public Works & Engineering:
- Using just the mismanagement, waste, and downright fraud findings already chronicled by the media, this massive department should be a veritable gold mine for potential savings
- Needs an independent economy and efficiency audit
FAT INDICATORS - #5
- Comparable in size to largest law firms in Houston.
- Consultant’s 2000 performance review of department said “---To summarize our overall assessment of the City Attorney’s Office, it is our position that the performance of the Legal Department is quite remarkable---” and “---consulting team concludes that the Legal Department delivers high quality legal services. The Legal Department is hard working, well managed, and generally efficient--”
- However, the consultant’s report also made the following statements
- “---Substantial opportunities exist for the Legal Department to improve productivity and performance by reducing inefficiencies, waste, and rework in internal processes. The Legal Department should implement continuous process improvement methodology and tools department-wide, and in every division---”.
- “---consulting team recommends a “zero-based” review of all records and reports prepared by the various divisions of the Legal Department, to eliminate documentation that does not add value. The consulting team believes that the Legal Department could pare back the number and volume of records and reports by at least half over a period of six to twelve months, with no significant negative impact on management or service delivery---”.
- “--Like most government agencies with which --- consultants have worked, the legal Department does not delegate work efficiently, nor is there any significant evidence of a professional culture that actively encourages delegation. Work product tends to be over-inspected and over-reviewed up the divisional chain of command. In ---(our) experience, multiple inspection of legal work is a costly and, ultimately, inefficiently way to manage quality-”
- “---Inadequate and poorly used information technology is the second greatest threat to the continued performance of the Legal Department---”
- Department needs a cost/benefit study and an economy and efficiency audit
FAT INDICATORS - #6
Parks & Recreation Department:
- Department has approximately 1,300 employees (full-time equivalents) and has grown by around one-third in last 10 years
- Department has the 3rd largest number of civilian employees
- Apparently has never undergone an independent cost/benefit study or economy and efficiency audit
- Department was selected as a guinea pig department for the City’s experiment with zero-based budgeting in the fiscal 2002 budget process. Department apparently was given only 48 days to do so. Department head’s June 7, 2001 budget presentation indicated less than enthusiastic support for zero-based budgeting process.
- At the conclusion of its fiscal 2002 zero-based budgeting process, the department actually increased its number of employees more than it did in budgeting the preceding fiscal year
FAT INDICATORS - #7
Finance & Administration:
- Department has around 600 employees
- Has grown about 29% in last 10 years, not reflective of personnel reductions usually available from information technology advances
- Has now moved several employees’ head count to Funds other than the General Fund
- Appears that department has a large number of employees in comparison to large private companies. Needs to have a truly independent economy and efficiency audit.
FAT INDICATORS - #8
Planning & Development:
- Department was increased to a budgeted 291 FTEs in fiscal 1993 in anticipation of zoning passing. Zoning failed and department was reduced to around 130 budgeted positions. However, the employees were merely transferred to public works for the most part, rather than being terminated.
- Department needs truly independent cost/benefit study and economy and efficiency audit.
- In addition to the above basic Planning & Development department, the City has a Planning-Building Inspection department that has about 270 employees, approximately a 46% increase in the last 10 years
FAT INDICATORS - #9
Water & Sewer Fund:
- Houston’s water (119%) and sewer (161%) rates increased tremendously from 1983 to 1990 and are still among the nation’s highest
- Yet the City now wishes to impose a special additional charge for flood prevention. Allison dumped about 3/5ths of Houston’s normal annual rainfall. No flatland city in the world could have prevented flooding in that situation. Houston is barely above sea level, so to where would the water drain? Additionally, why should the City bear the expenses of a regional problem?
- Fund’s maintenance and operating expenses (exclusive of depreciation and interest) are only about 40% of its operating revenues, leaving substantial cash flow available for debt service plus some underwriting (“Any Lawful Purpose” transfers) of the General Fund.
- Houstonians do not get to vote on the setting of water and sewer rates nor do Houstonians get to vote on authorizing water and sewer debt, which is the largest portion of the City’s debt, by far.
FAT INDICATORS - #10
- Number (over 80) of employees assisting city council members has increased almost one-half in last decade
- Number (over 30) of employees in affirmative action department has increased about two-fifths in last decade
SUMMARY AND CONCLUSIONS
It seems very clear to me that the City of Houston’s finances need to be brought under control, and as quickly as possible. Otherwise, the excessive revenues it is extracting from its citizens and businesses are going to become an insidious cancer that will cause Houston to lose its competitive advantages and harm the personal finances of its citizens.
Most of the information contained in this presentation has been furnished in writing to every elected City official over the last year, more than once to those reelected last November.
Citizens For Public Accountability, a bipartisan group of retired partners of some Houston’s accounting firms, and I have repeatedly been denied the opportunity to appear before city council’s fiscal affairs committee. The mayor has declined to meet with us. We believe it is highly disrespectful of the general citizenry for our elected City officials to apparently feel that only elected officials and bureaucrats deserve a place at the table when discussing City finances.
We believe that our strongly credentialed group could make a very positive contribution to resolving the City’s financial dilemma. The problems can’t be solved until they are first acknowledged.
To help solve the problems, I recommend that TRA:
- Endorse and actively support the proposed city charter amendment that will be on the ballot sometime in 2004
- Send a copy of this presentation to every current elected City official and every current and future announced candidate for the November 2003 elections, and request that they give a detailed and prompt response. Remind those who will not be seeking reelection to City office that their actions or inaction will be part of the assessment of their qualifications for other offices.
Thank you very much for the opportunity to dialogue with you on this extremely important and timely subject.